Insourcing public services: Consequences for wages and employment

• Published date: 01 May 2024
• Author: Gustav Egede Hansen,Ole Helby Petersen
• Date: 01 May 2024
• DOI: http://doi.org/10.1111/puar.13692

RESEARCH ARTICLE

Insourcing public services: Consequences for wages

and employment

Gustav Egede Hansen

1

| Ole Helby Petersen

2

1

Department of Social Sciences and Business,

Roskilde University, Roskilde, Denmark

2

Department of Social Sciences and Business,

Center for Research on Public–Private

Collaboration, Roskilde University, Roskilde,

Denmark

Correspondence

Gustav Egede Hansen, Department of Social

Sciences and Business at Roskilde University,

Skoleholdervej 49, Copenhagen, Denmark.

Email: gustavegedehansen@gmail.com

Ole Helby Petersen, Department of Social

Sciences and Business, Center for Research on

Public–Private Collaboration, Roskilde University,

Roskilde, Denmark

Email: olehp@ruc.dk

Abstract

After decades of private companies delivering public services, governments are

increasingly using a mix of outsourcing and insourcing to provide services. With

insourcing, governments replace market competition with public monopoly and

concentrated private ownership with more dispersed public ownership. Despite

these fundamental changes in competition and ownership, little is known theoreti-

cally and empirically about how insourcing affects employees. This study uses

high-quality, individual-level Danish register data to examine how insourcing

affects employees overall and among employees of different gender and age. The

analysis shows that insourcing significantly and positively affects short- and

intermediate-term work income and employment. Moreover, moderation analyses

suggest that insourcing is particularly beneficial for female, younger, and older

employees. These findings have important implications for policy makers, as they

provide insights into longstanding questions about insourcing in public adminis-

tration and reveal how estimating total insourcing costs should include employee

consequences, especially for female and younger/older employees.

Evidence for practice

•Insourcing is a policy measure whereby governments take back public services

and jobs from the private sector.

•Insourced employees increase their work income and employment (i.e., number

of working hours) 1 year and 3 years after insourcing.

•Female, younger, and older employees particularly benefit from insourcing.

•The positive impact on insourced employees suggests that governments should

consider more than costs and quality when choosing service delivery modes.

INTRODUCTION

Public service delivery has undergone significant changes

in recent decades (Albalate, Bel, & Reeves, 2021). From a

situation characterized by privatization and outsourcing,

governments are now concurrently returning services to

the public sector—a process often referred to as insour-

cing (Clifton et al., 2019; Voorn, 2021). Insourcing replaces

market competition with public monopoly and private

ownership with dispersed public ownership without

rights to appropriate benefits from cost reductions. With-

out competitive pressures and prospects of claiming

profits, public sector officials have weaker incentives to

reduce salaries and increase productivity than private pro-

viders (Bel et al., 2010; Petersen et al., 2021). Thus, while

outsourcing studies link cost reductions to deteriorating

working conditions (Domberger & Jensen, 1997; Hansen

et al., 2022; Jensen & Stonecash, 2005), insourcing could

have positive employee effects and net welfare benefits

due to the reversal of critical cost-related mechanisms.

Existing research has largely focused on outsourcing,

while the literature on insourcing has only recently begun to

coalesce (Clifton et al., 2019). Insourcing studies focus on its

scope, with Kishimoto et al. (2019) identifying 924 cases of

insourcing across 58 countries from 2000 to 2019. Studies

also indicate that the insourcing of waste collection exceeds

Received: 22 March 2022 Revised: 9 June 2023 Accepted: 20 June 2023

DOI: 10.1111/puar.13692

This is an open access article under the terms of the Creative Commons Attribution-NonCommercial License, which permits use, distribution and reproduction in any

medium, provided the original work is properly cited and is not used for commercial purposes.

© 2023 The Authors. Public Administration Review published by Wiley Periodicals LLC on behalf of American Society for Public Administration.

432 Public Admin Rev. 2024;84:432–446.

wileyonlinelibrary.com/journal/puar